We test whether factors that explain the cross-section of expected returns are also used as risk factors in management contracts, based on simple theory that links wealth effects implied factors to optimal incentive pay. Some evidence for Fama French, and stronger evidence for momentum and bond price factor; evidence for the market factor (CAPM) only in the recent period.

How do we agree when many privately informed parties jointly vote over their preferred partition? Surprisingly, if any partition can be considered, any status-quo partition can be defeated in a vote against a suitably chosen alternative even if near-unanimous vote were required to change the status-quo. If we require partitions to rank events from best to worst, however, full-disclosure is the only rule that can survive votes, and for a class of distributions with thin tails, the required majority for full-disclosure to survive is about 2/3 (the required super-majority increases with heavy tails).

A methodology to solve any static persuasion game, i.e., a sender-receiver problem in which the sender's only cares about the receiver's posterior expectation. The approach extends the results of 'classic' disclosure theory even when disclosure costs or information-endowment are type-specific (plausible) and shows that, typically, a sender is made worse-off by disclosure regulation.

Summary: All other things being equal, an increase to conservatism would increase earnings management (i.e., incentives to cheat are greater for a 'hard' exam) but also increases contracting efficiency. The optimal level of conservatism is positively correlated to the initial quality of the projects and of the accounting system, suggesting that better firms choose to be conservative, not that conservatism causes better economic outcomes.

Summary: If market prices are too volatile, we cannot use them to build useful cost of capital measures for firm-level decisions or, even, evaluate those measures: What should we do then? I argue that the linear information framework of Clubb-Feltham-Ohlson does offer offer simple testable exclusions about its implied cost of capital measures, which do not rely on price. The recent paper of Christodoulou, Clubb and McLeay (in the same issue of Abacus) offers a perfect setting for these tests. Based on the test results, I argue that the model may have to be adjusted for intangible capital.

Summary: A primer about (i) 'why' and (ii) 'how to' leverage on explicit theory to establish a credible causal statement, organized as a synthesis of the 2014 Stanford Causality conference. Here is a representative introductory quote (p.3) "making assumptions should not be taken as a scientific compromise, or something to hide; instead, assumptions should be presented and opened for discussion. The message is simple: assumptions should be explicit, transparent, and deliver new insights. Without a clear understanding of the assumptions of empirical tests and measures, causal inferences will remain elusive."

We prove that (i) unfavorable soft information, including no hard report, is the most informative report, (ii) a firm issuing hard information is more likely to misreport its soft information, (iii) soft reports are typically unbiased, (iv) the relative use of soft vs. hard information depends on the manager's credibility, and (v) mandating more hard information can reduce communication.

Note: there is a typo in A1, the definition of thin tail reads "lim d ln f(y)/d(y)=inf" while it should be "lim e^(a y) F(-y)=0 for all a>0".

Summary: What is the optimal measurement of productive assets used in collateral in loan agreements? The argument is weaved around the following idea: firms with the lowest-valued collateral, defined as lowest alternative use, are precisely those that should operate but fail to get loans. To resolve this, in response to more credit frictions, the measurement may increase opacity and the amount of inefficient termination. The model also develops comparative statics about the equilibrium collateral and its relation to measurement.

Summary: Accounting standards are evolved institutions, demands by preparers are fundamental drivers of this evolution.

We show that a politically weak standard-setter lead to regulatory cycles - slow increases in disclosure requirements followed by abrupt deregulation. This is inefficient from the perspective of production and we advocate for a more independent, strong, standard-setting body.

Summary: A model of collective political choice over mandatory disclosure (e.g., a positive theory of GAAP).

Political choice implies that a pivotal firm (the median) implements the regulation it prefers, i.e., do not disclose jointly with other good news firm but bad news must be disclosed. This asymmetry is more pronounced with more uncertainty and if information is easy to verify.

Summary: A discussion of Gunter Strobl's JAR conference paper, offering various novel predictions about the link between earnings management (EM) and cost of capital.

I disagree with G. Strobl's ambiguous result and formally show that EM decreases the cost of capital under plausible scenarios. Extending the framework, I show that an aggregate accounting quality measure explains the cross-section of expected returns.

Accounting quality is minimal just prior to a downturn and increases again during and after a recession. The counter-cyclical increase in accounting quality makes accounting magnify the real effects of a financial crisis, when it hits.

Summary: New industries usually feature a phenomenon knows as a shake-out: quick entry, followed by exit of most first-period entrants. In a model of strategic uncertainty, the greater the p0tential benefits of monopoly rents, the greater the entry, and the greater the follow-up shake-out.